THE SECURITIES AND EXCHANGE COMMISSION S 2006 EXECUTIVE COMPENSATION RULES
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1 THE SECURITIES AND EXCHANGE COMMISSION S 2006 EXECUTIVE COMPENSATION RULES PREPARING THE EXECUTIVE COMPENSATION TABLES: REQUIRED DISCLOSURE BY TYPE OF COMPENSATION September 2006 By W. Alan Kailer This outline provides only a general overview of the SEC s requirements f tabular disclosure of executive compensation. It is not intended to provide legal advice. F questions concerning this outline, contact W. Alan Kailer, Jenkens & Gilchrist, Dallas, Texas (214) DALLAS v W. Alan Kailer September 2006
2 Table of Contents Page Salary...1 Bonus...1 Bonus Stock...1 Signing Retention Bonus...1 Stock Awards...2 Earnings on Stock Awards...3 Modifications Waivers of Stock Awards...3 Stock Award Holdings...4 Stock Award Vesting...5 Stock Award Ffeiture...5 Shares available under Stock Award plans arrangements...5 Option Awards...5 Earnings on Option Awards...7 Option Awar d Holdings...7 Transferred Option Awards...8 Reload Option Awards...9 Option Award Exercises...9 Repricings, Modifications Waivers of Option Awards...9 Incentive Plan Awards Modifications Waivers of Incentive Plan Awards Earnings on Non-Equity Incentive Plan Awards Non-Equity Incentive Plan Holdings Payouts of Non-Equity Incentive Plan Awards Ffeitures of Non-Equity Incentive Plan Awards Discount Stock Deferred (including Defined Contribution Plans) Payout of Deferred Earnings on Deferred Employee Contributions to Defined Contribution Deferred Plans Employer Contributions Allocations under Defined Contribution Plans Deferred Plans Life, Health, Hospitalization, Medical Reimbursement Plans Relocation Plans Assistance All Other Perquisites Other Personal Benefits, Tax Reimbursement Payments Gross-ups Severance Change in Control Agreements Provisions Severance Change in Control Payments Pension Defined Benefit Plan Benefits (including supplemental plans) Life Insurance f NEO s Direct s Benefit Total Employment agreements arrangements with NEOs tied to business combination Paid by Third Parties Paid Other than in U.S. Dollars Direct Fees Other Direct Chari gifts legacy programs in direct s name of Non-NEO Employees Periods to be Repted Paid by Predecess Success Change of Methodology in Calculating Amounts Timing of Disclosure Change from Officer to Direct Status from Direct to Officer Omission of Table Column Order of Presentation Effective Date Transition Title of Tables Key Definitions DALLAS v i
3 REQUIRED DISCLOSURE BY TYPE OF COMPENSATION OR PLAN Statements in italics are interpretations under the pre-2007 rules, which are presumed to apply to the new rules, but this presumption has not been confirmed by the SEC Staff Plan Salary Where Repted SCT Salary S-K Item 402 Reference (c)(2)(iii) Comments - Disclose separately from Bonus - If amount earned in a given year is not calculable at the time of disclosure, a footnote must disclose that fact provide the date the amount of salary bonus is expected to be determined; when determined the amount a new Total figure must be disclosed in a filing under Item 5.02(f) of Fm 8-K. (c)(2)(iii) (iv), Instruction 1. - Includes fair market value of stock other non-cash items received as salary, except f equity-based other non-cash amounts earned as deferred compensation. (c)(2)(iii) (iv), Instruction 2. - If deferred, see Deferred - received by an NEO as a direct of the registrant must be included in the SCT under the appropriate a footnote must identify quantify such compensation using the categies in the Direct Table. (c), Instruction 3. - The Staff has commented that sales commissions paid should be included in the Salary. Weig at J-23 Bonus SCT Bonus (c)(2)(iv) - Disclose separately from Salary - As with all compensation, must be repted in year earned, rather than year paid, if different. (c)(2)(iii) (iv), Instruction 1; see Adopting Release at text accompanying note Includable whether payable under fmal plan otherwise - Comments under Salary also apply to Bonuses - F distinction between Bonus Incentive Plan compensation, see definitions of Bonus Incentive Plan below. Bonus Stock SCT Bonus (c)(2)(iv) - Unrestricted (bonus) stock other non-cash bonus compensation is to be included in Bonus, American Bar Association (Dec. 11, 1992) Q.3; Tel. Interp. Manual, J.10. Query the extent to which this interpretation continues to apply in light of (c)(2)(iii) (iv), Instruction 2. Signing Retention Bonus SCT Bonus (c)(2)(iv) - A one-time signing bonus must be repted in the Bonus, 2001 JCEB, Q.12 - Similarly, although not addressed by the rules Staff interpretations, it would appear advisable to rept the payment of a one-time retention bonus in the Bonus f the year paid, even if the payment is tied to multiple years of service. DALLAS v W. Alan Kailer September 2006
4 Stock Awards (including Restricted Stock, Restricted Stock Units, Phantom Stock, Phantom Stock Units, Common Stock Equivalent Units similar, Non- Option Instruments) SCT Stock Awards (c)(2)(v) - Disclose the aggregate grant date fair value under FAS 123R - Includes awards that have been transferred (presumably, whether not the transfer was f value) - Footnote to this must disclose all assumptions made in the valuation, by cross-referencing to the discussion in registrant s financial statements, footnotes to financial statements, MD&A. (c)(2)(v) (vi), Instruction 1. - This includes Stock Awards made pursuant to equity incentive plans. Adopting Release at text accompanying note Includes Salary Bonus deferred at the election of an NEO in the fm of stock-based compensation, if not repted in the Salary Bonus f that year. (c)(2)(iii) (iv), Instruction 2. There appears to be no reason that this same rule should not apply when the deferral is at the direction of the registrant. See Deferred. - Subsequent remeasurements of the value of a liability award under FAS 123R are not required to be disclosed unless they result from a modification of the award. Adopting Release at note 150. Grants of Plan-Based Awards (d) - F awards other than pursuant to an equity incentive plan, the grant date the number of shares of stock awarded during the year must be repted in this - F awards pursuant to an equity incentive plan, see Incentive Plan Awards - The grant date determined pursuant to FAS 123R is required to be disclosed in this. (d)(2)(ii); see Adopting Release at text accompanying note If the grant date of the award is different than the date on which the compensation committee takes action, a separate, adjoining must be added showing such date - If me than one award is made to an NEO during the last completed year, a separate line must be used to disclose each award. (d), Instruction 1. - If awards are made during the year under me than one plan, the particular plan under which the award is made must be identified. (d), Instruction 1. - Tem grants of an incentive plan award a nonincentive plan award need only be repted in applicable to non-incentive plan awards, with the tem feature noted either by footnote narrative. (d), Instruction 4. - The dollar amount of any consideration paid by an NEO f the award must be disclosed in a footnote to the appropriate. (d), Instruction 5. - Materially modified awards are not required to be repted in this. See Adopting Release at text accompanying note Awards that have been granted to transferred by an NEO must be included in the total number of shares granted that are disclosed in this, presumably whether not the transfer was f value DALLAS v W. Alan Kailer September 2006
5 Narrative (e) - Narrative accompanying the s must describe any material facts necessary to an understing of the infmation disclosed, which may include an explanation of the material terms of any award (such as whether dividends will be paid on stock, a general description of the criteria applied in determining the amounts payable, any perfmance-based conditions to vesting, the vesting schedule) a description of any material modification of the award during the year Earnings on Stock Awards Not separately repted - Because the value of the right to receive dividends is facted into the grant date fair value under FAS 123R, dividends other earnings paid on Stock Awards are generally not required to be repted separately. See Adopting Release at text accompanying notes SCT All Other (c)(2)(ix)(g) - However, when not facted into the grant date fair value repted f the year of grant, the dollar value of any dividends other earnings paid on Stock Awards must be repted in the All Other Modifications Waivers of Stock Awards Narrative (e)(1)(ii) - Materially modified Stock Awards are not required to be repted in either the SCT the Grants of Plan-Based Awards. See Adopting Release at text accompanying note Narrative accompanying s must describe each material modification waiver during the last completed year (such as change of vesting ffeiture, change of perfmance criteria, waiver of perfmance targets conditions to payout) - The stard of materiality that applies is that of Basic v. Levinson, TSC Industries v. Nthway. Adopting Release at note 253. DALLAS v W. Alan Kailer September 2006
6 Stock Award Holdings Outsting Equity Awards at Fiscal Year- End (f) - Number either market payout value of unearned unvested Stock Awards held by each NEO at end of year under any equity incentive plan must be included in this - Number value of all other unvested Stock Awards held by each NEO at end of year must also be separately included in this - Unlike Option Awards, it is not required to rept each award on a separate line - The number of shares repted f awards under incentive plans ( the payout value if that amount rather than market value is repted) is to be based on achieving threshold perfmance goals, except that if the previous fiscal year s perfmance has exceeded the threshold, the disclosure is to be based on the next higher perfmance measure (target maximum). If the award provides only f a single estimated payout, that amount is to be repted. If the target amount is not determinable, a representative amount based on the previous fiscal year s perfmance must be provided. (f)(2), Instruction 3. - Market value of non-incentive plan awards ( of incentive plan awards f which market value rather than payout value is repted) must be computed by multiplying year-end closing market price by number of shares held. (f)(2), Instruction 3. - Must include awards that NEO has transferred other than f value; any such award must be identified in a footnote, disclosing the nature of the transfer. (f)(2), Instruction 1. - Vesting dates of awards held at year end must be disclosed in footnotes to the s in which the awards are repted. (f)(2), Instruction 2. - Awards under an equity incentive plan are to be repted in the f equity incentive plan awards only until the relevant perfmance condition has been satisfied; thereafter, Stock Awards are to be repted in f non-equity incentive plan awards until they vest, even if the award is subject to ffeiture conditions. (f)(2), Instruction 5. Equity Plan, (a) - Outsting stock, f which shares have not been issued, should be repted in (a) of the Equity Plan Infmation. However, disclosure of outsting shares of restricted bonus stock is not required in this because these shares are already outsting do not represent potential dilution. Item 201(d) DALLAS v W. Alan Kailer September 2006
7 Stock Award Vesting Option Exercises Stock Vested (g) - Number value of Stock Awards that vested were transferred f value during the year must be included in this - Includes vesting transfer of equity incentive plan awards - Value realized on vesting is the market price of underlying securities at vesting date; presumably without including any related payment by the registrant to the NEO such as gross-up payments. (g)(2), Instruction. - F any amount realized upon vesting f which receipt has been deferred, a footnote quantifying the amount disclosing the terms of the deferral must be provided. (g)(2), Instruction. - Presumably, the number of shares vested is a single number reflecting the gross amount of shares to which the awards relate, without netting any shares surrendered to pay taxes. Stock Award Ffeiture Not repted - No repting of Stock Award ffeitures is required; however, Stock Awards that have been ffeited will no longer be included in the Outsting Equity Awards at Fiscal Year-End, if shares ffeited again become available f grant, they will be included in the appropriate of the Equity Plan Shares available under Stock Award plans arrangements Equity Plan - Infmation regarding number of securities available f future issuance is required in the Fm 10-K, when shareholder approval of any compensation plan is sought, in the proxy statement pursuant to Item 201(d) Option Awards (including Stock Options, with without Tem SARs, Freesting SARs similar Option- Like Instruments) SCT Option Awards (c)(2)(vi) - Disclose the aggregate grant date fair value under FAS 123R - Includes awards that have been transferred (presumably, whether not the transfer was f value) - Footnote to this must disclose all assumptions made in the valuation, by cross-referencing to the discussion in registrant s financial statements, footnotes to financial statements, MD&A. (c)(2)(v) (vi), Instruction 1. - This includes Option Awards made pursuant to equity incentive plans. Adopting Release at text accompanying notes The incremental value of any awards that were repriced materially modified during the year must be repted in this, computed as of the repricing modification date in accdance with FAS 123R, (c)(2)(v) (vi), Instruction 2. - Subsequent remeasurements of the value of a liability award under FAS 123R are not required to be disclosed unless they result from a modification of the award. Adopting Release at note Because the s must rept all compensation paid by any person to the NEO f services rendered to the registrant its subsidiaries, options other rights to purchase securities of the parent subsidiary of the registrant should be repted in the same manner as options to purchase the registrant s securities. (a)(2). DALLAS v W. Alan Kailer September 2006
8 Grants of Plan-Based Awards (d) - Unlike the SCT, this requires that Option Awards under equity incentive plans be repted separately from other Option Awards - F awards pursuant to an equity incentive plan, see Incentive Plan Awards - F awards other than pursuant to an equity incentive plan, the grant date, exercise price number of shares underlying options awarded during the year must be repted in this - The grant date determined pursuant to FAS 123R is required to be disclosed in this. (d)(2)(ii); see Adopting Release at text accompanying note If the grant date of the award is different than the date on which the compensation committee takes action, a separate, adjoining must be added showing that date - If the exercise price is less than the closing market price of the underlying security on the date of the grant, a separate, adjoining must be added showing the closing market price on the date of the grant. Presumably this requirement applies only to awards made other than pursuant to an incentive plan. - If me than one award is made to an NEO during the last completed year, a separate line must be used to disclose each award. (d), Instruction 1. - If awards are made during the year under me than one plan, the particular plan under which the award is made must be identified. (d), Instruction 1. - Tem grants need only be repted in applicable to non-incentive plan awards, with the tem feature noted either by footnote narrative. (d), Instruction 4. - The dollar amount of any consideration paid by an NEO f the award must be disclosed in a footnote to the appropriate. (d), Instruction 5. - If no market exists f the underlying stock, any fmula prescribed f the security may be used to determine whether the exercise price is less than the closing market price. (d), Instruction 3. - When the exercise price is not the closing market price, the methodology f determining the exercise price must be disclosed either by a footnote accompanying narrative. (d), Instruction 3. - Repriced materially modified awards are not required to be repted in this. See Adopting Release at text accompanying note Awards that have been granted to transferred by an NEO must be included in the total number of shares underlying options granted that are disclosed in this, presumably whether not the transfer was f value DALLAS v W. Alan Kailer September 2006
9 Narrative (e) - Narrative accompanying the s must describe any material facts necessary to an understing of the infmation disclosed, which may include an explanation of the material terms of any award (such as whether dividends will be paid on underlying stock, a general description of the criteria applied in determining the amounts payable, any perfmance-based conditions to vesting, the vesting schedule) a description of any repricing material modification of the award during the year - The Commission is of the view that transferability of an option is a term that should be disclosed, but has not codified this position because in the future transferability may become a stard option feature Release at III.D.2. Earnings on Option Awards Not separately repted - Because the value of the right to receive dividends is facted into the grant date fair value computed under FAS 123R, dividends other earnings paid on Option Awards are generally not required to be repted separately. See Adopting Release at text accompanying notes SCT All Other (c)(2)(ix)(g) - However, when not facted into the grant date fair value repted f the year of grant, the dollar value of any dividends other earnings paid on Option Awards must be repted in the All Other Option Award Holdings Outsting Equity Awards at Fiscal Year- End (f) - The exercise price, expiration date number of securities underlying unearned unvested Option Awards held by each NEO at end of year under any equity incentive plan must be included in this, separated between exercisable unexercisable options - The exercise price, expiration date number of securities underlying all other unvested Option Awards held by each NEO at end of year must also be separately included in this, separated between exercisable unexercisable options - Each award must be repted on a separate line, except that multiple awards may be aggregated where the expiration date the exercise price is identical. A single award consisting of a combination of options, SARs / similar instruments must be repted as separate awards with respect to each tranche with a different exercise price expiration date. (f)(2), Instruction 4. - Must include awards that an NEO has transferred other than f value; any such award must be identified in a footnote, disclosing the nature of the transfer. (f)(2), Instruction 1. - Vesting dates of awards held at year end must be disclosed in footnotes to the s in which the awards are repted. (f)(2), Instruction 2. - Awards under an equity incentive plan are to be repted in the f equity incentive plan awards only until the relevant perfmance condition has been satisfied; thereafter, options are to be repted in f nonequity incentive plan awards until they are exercised expire, even if the option is subject to ffeiture conditions. (f)(2), Instruction 5. DALLAS v W. Alan Kailer September 2006
10 Equity Plan - Infmation regarding number of securities subject to outsting options, weighted average exercise price number of securities available f future issuance is required in the Fm 10-K, when shareholder approval of any compensation plan is sought, in the proxy statement pursuant to Item 201(d). This infmation should not include options outsting under an employee stock purchase plan f which the purchase period has not expired. Shares available under Stock Option, SAR other plans arrangements Equity Plan - Infmation regarding number of securities available f future issuance under any nonqualified plan, including employee stock purchase plans, is required in the Fm 10- K, when shareholder approval of any compensation plan is sought, in the proxy statement pursuant to Item 201(d) Option Award Expirations Terminations Not repted - No repting of Option Award expirations terminations is required; note, however, that Option Awards that have terminated will no longer be included in the Outsting Equity Awards at Fiscal Year-End Transferred Option Awards SCT Option Awards (c)(2)(vi) - Awards that have been granted to transferred by an NEO must be included in the total value of awards granted that are disclosed in the SCT, presumably whether not the transfer was f value - The Staff is also of the view that reload options issued directly to transferees also should be repted in the same manner as reload options issued to the NEO Release at III.D.1. Grants of Plan-Based Awards (d)(1) - Awards that have been granted to transferred by an NEO must be included in the total number of shares underlying options granted that are disclosed in this, presumably whether not the transfer was f value Outsting Equity Awards at Fiscal Year- End (f) - This must include awards that the NEO has transferred other than f value; any such award must be identified in a footnote, disclosing the nature of the transfer. (f)(2), Instruction 1. Option Exercises Stock Vested (g) - This must rept Option Awards that the NEO has transferred f value during the year. (g), Instruction. DALLAS v W. Alan Kailer September 2006
11 Reload Option Awards SCT Option Awards Grants of Plan-Based Awards (c)(2)(vi) (d) - An exercise of reload options resulting in additional options being issued must be repted as a new grant in the s. See Adopting Release at note 162 accompanying text - An exercise of reload options resulting in additional options being issued must be repted as a new grant even if the reload option is held by a transferee, 1999 Release at III.D.1. Narrative (e) - A reload feature is also a material term of an award that should be described in the narrative accompanying the s. See Reg. S-B Item 402(c)(4). Option Award Exercises Option Exercises Stock Vested (g) - The number of shares underlying Option Awards that were exercised transferred f value during the year the value realized must be included in this - Includes exercises of equity incentive plan awards - Value realized is the difference between market price of underlying securities at exercise exercise price, without including any related payment by the registrant to the NEO such as gross-up payments. (g)(2), Instruction. - F any amount realized upon exercise f which receipt has been deferred, a footnote must be provided quantifying the amount disclosing the terms of the deferral. (g)(2), Instruction. - See also Transferred Option Awards - An exercise of reload options resulting in additional options being issued must be repted as a new grant in the s. See Adopting Release at note 162 accompanying text. This is true even if the reload option is held by a transferee, 1999 Release, Part III.D. - Number of shares should be a single number reflecting the gross amount of shares to which the awards relate, without netting any shares surrendered to pay exercise price taxes. Tel. Interp. Manual, J When a registrant s initial public offering occurs after exercise after the previous fiscal year end, the initial offering price may be used in lieu of exercise date fiscal year-end fair market value in calculating value realized year-end value of unexercised options, 1993 Release, Part IV.C. Repricings, Modifications Waivers of Option Awards SCT Option Awards (c)(2)(vi) - The incremental value of any awards that were repriced materially modified during the year must be repted in this, computed as of the repricing modification date in accdance with FAS 123R, (c)(2)(v) (vi), Instruction 2. - Subsequent remeasurements of the value of a liability award under FAS 123R are not required to be disclosed unless they result from a modification of the award. Adopting Release at note The stard of materiality that applies is that of Basic v. Levinson, TSC Industries v. Nthway. Adopting Release at note Repriced materially modified awards are not required to be repted in Grants of Plan-Based Awards. See Adopting Release at text accompanying note 241. DALLAS v W. Alan Kailer September 2006
12 Narrative (e)(1)(ii) - Narrative accompanying s must describe each repricing, material modification waiver during the last completed year (such as extension of exercise periods, change of vesting ffeiture, change of perfmance criteria, waiver of perfmance targets conditions to payout) Incentive Plan Awards SCT Non- Equity Incentive Plan (c)(2)(vii) - F grants under an equity incentive plan, see Stock Awards Option Awards - Grants of non-equity incentive plan awards are not repted in the SCT. See Adopting Release at text accompanying notes Amounts earned under a non-equity incentive plan must be repted f the year in which the relevant perfmance measure is satisfied, even if not payable until a later date. (c)(2)(vii), Instruction 1. - If an award has different tranches providing f separate perfmance criteria f periods within a multi-year perfmance measure, each tranche must be repted as earned with the applicable perfmance measure is satisfied. (c)(2)(vii), Instruction 1. - Amounts are not rep again in the year when amounts are paid to the NEO. (c)(2)(vii), Instruction 1. - All earnings on non-equity incentive plan compensation must be identified quantified in a footnote to this, whether the earnings were paid during the year, payable during the period but deferred at the election of the NEO, payable by their terms at a later date. (c)(2)(vii), Instruction 2. DALLAS v W. Alan Kailer September 2006
13 Grants of Plan-Based Awards (d) - Requires disclosure of all incentive plan awards made during the year, including those that were also earned during the year. See definition of Incentive Plan. - F non-equity incentive plan awards, the value of the estimated future payout upon satisfaction of the conditions, the applicable range of estimated payouts, denominated in dollars, must be repted in this - If non-equity incentive plan awards are denominated in units other rights, a separate, adjoining must be added quantifying the units other rights awarded. (d), Instruction 6. - F equity incentive plan awards, the grant date, number of shares of stock number of shares underlying options, the applicable range of estimated payouts, denominated in number of shares, must be repted in this - If the grant date of an equity award is different than the date on which the compensation committee takes action, a separate, adjoining must be added showing that date - If the exercise price of an Option Award is less than the closing market price of the underlying security on the date of the grant, a separate, adjoining must be added showing the closing market price on the date of the grant - Number dollar amount of estimated future payout range of estimated payouts, expressed as Threshold, Target Minimum payout amounts, are required f all types of incentive plan awards. - If award provides only f a single actual estimated payout amount, that amount is to be repted as the Target amount. (d), Instruction 2. - If the Target amount is not determinable, registrant must provide a representative amount based on perfmance during the last fiscal year (e.g., amount of EPS increase experienced in pri year). (d), Instruction 2. - If me than one award is made to an NEO during the last completed year, a separate line must be used to disclose each award. (d), Instruction 1. - If awards are made during the year under me than one plan, the particular plan under which the award is made must be identified. (d), Instruction 1. - Tem grants of an incentive plan award a nonincentive plan award need only be repted in applicable to non-incentive plan awards, with the tem feature noted either by footnote narrative. (d), Instruction 4. - The dollar amount of any consideration paid by an NEO f the award must be disclosed in a footnote to the appropriate. (d), Instruction 5. - Materially modified awards are not required to be repted in this. See Adopting Release at text accompanying note Includes awards that have been transferred. (d)(1). - If plan does not specify threshold maximum amounts, threshold maximum amounts may be omitted, American Bar Association (Dec. 11, 1992) Q.5. Tel. Interp. Manual, J.8. DALLAS v W. Alan Kailer September 2006
14 Narrative (e)(1)(iii) - Narrative accompanying the s must describe any material facts necessary to an understing of the infmation disclosed, which may include an explanation of the material terms of any award (such as whether dividends will be paid on underlying stock, a general description of the criteria applied in determining the amounts payable, any perfmance-based conditions to vesting, the vesting schedule) a description of any repricing material modification of the award during the year - The Commission is of the view that transferability of an option is a term that should be disclosed, but has not codified this position because in the future transferability may become a stard option feature Release at III.D.2. Modifications Waivers of Incentive Plan Awards Narrative (e) - F modifications, waivers repricings of awards under equity incentive plans, see Modifications Waivers of Stock Awards Repricings, Modifications Waivers of Option Awards. - Narrative accompanying s must describe each material modification waiver under a non-equity incentive plan during the last completed year (such as extension of exercise periods, change of vesting ffeiture, change of perfmance criteria, waiver of perfmance targets conditions to payout) Earnings on Non-Equity Incentive Plan Awards SCT Non- Equity Incentive Plan (c)(2)(vii) - Earnings on outsting non-equity incentive plan awards must be disclosed in this in the year earned, even if not payable until a later date even if deferred. (c)(2)(vii), Instruction 2. - Requirement is to disclose all earnings, not merely abovemarket ption. (c)(2)(vii), Instruction 2. - Once repted f the year earned, amounts are not rep again in the year paid. (c)(2)(vii), Instruction 1. - Earnings must be separately identified quantified in a footnote to this, whether paid during the year, payable but deferred at the election of the NEO, payable by their terms at a later date. (c)(2)(vii), Instruction 2. - If earnings are in the fm of another type of disclosable compensation (e.g., restricted stock, options, deferred compensation), query whether the payment of that compensation must also be disclosed in the appropriate? Non-Equity Incentive Plan Holdings Not Repted - Unlike equity awards, there is no specific requirement to disclose outsting awards under non-equity incentive plans, but registrants may wish to discuss these awards in the narrative under (e), to the extent material Payouts of Non-Equity Incentive Plan Awards SCT Non- Equity Incentive Plan (c)(2)(vii) - Amounts are rep only f the year that the relevant perfmance measure is satisfied, even if not payable until a later date subject to ffeiture conditions, are not rep again in the year when amounts are paid to the NEO. (c)(2)(vii), Instruction 1; see Adopting Release at text accompanying note 174. DALLAS v W. Alan Kailer September 2006
15 Ffeitures of Non-Equity Incentive Plan Awards Narrative (e) - Registrants are encouraged to use the narrative accompanying the s to disclose material features that are not reflected in the tabular disclosure, including subsequent ffeitures of amounts repted in the with respect to previous fiscal years. Adopting Release at text accompanying note 175. Discount Stock (other than 423 Employee Stock Purchase Plans, DRIPs) SCT All Other (c)(2)(ix)(c) - If the NEO purchased any security of the registrant its subsidiaries from the registrant its subsidiaries at a discount from the market price of the security at the date of purchase, then the compensation cost computed in accdance with FAS 123R must be repted in this - No compensation is required to be disclosed if there is no compensation cost computed f the discounted securities purchase in accdance with FAS 123R. Adopting Release at note Disclosure required even if purchase is indirect, e.g., through deferral of salary bonus rather than through direct purchase - Presumably does not include restricted stock disclosed in Stock Awards, even when purchased at a discount Not Repted - No disclosure required if the discount is available generally, either to all security holders to all salaried employees of the registrant, such as through an ESPP DRIP. Deferred (including Defined Contribution Plans) SCT (c) - Salary, Bonus, Non-Equity Incentive Plan All Other earned but deferred, whether at the election of an NEO at the direction of the registrant (except as described in next paragraph), must be disclosed in the appropriate f the year in which earned. (c), Instruction 4. - Salary Bonus deferred at the election of an NEO in exchange f stock-based other non-cash compensation need not be repted in the Salary Bonus if disclosed in the appropriate non-cash compensation f that year, if made pursuant to a non-equity incentive plan a footnote to those s must state this fact refer to the Grants of Plan-Based Awards where the award is repted. (c)(2)(iii) (iv), Instruction 2. There appears to be no reason that this same rule should not apply when the deferral is at the direction of the registrant. - Above-market preferential earnings on compensation that is deferred on a basis that is not tax-qualified, including such earnings on nonqualified defined contribution plans, must be included in the Pension Value Nonqualified Deferred Earnings of the SCT Grants of Plan-Based Awards (d) - Amounts deferred pursuant to a non-equity incentive plan must be disclosed in a footnote to the appropriate of SCT refer to the Grants of Plan-Based Awards where the award is repted. (c)(2)(iii) (iv), Instruction 2. DALLAS v W. Alan Kailer September 2006
16 Nonqualified Deferred (i) - F any nonqualified plan under which an NEO may defer compensation, NEO contributions, registrant contributions, all earnings (not only above-market earnings), withdrawals f latest year balance at end of year must be disclosed in this - Footnote to must quantify the extent to which amounts repted in this are were repted as compensation in the SCT, (i)(2), Instruction. Narrative (e) (i)(3) - Narrative must describe any material facts necessary to an understing of each plan covered in this, which may include: * the types of compensation permitted to be deferred, any limitations on the extent to which deferral is permitted; * the measures of calculating interest other plan earnings (including whether those measures are selected by the NEO the company the frequency manner in which such selections may be changed), quantifying interest rates other earnings measures applicable during the company s last fiscal year; * material terms with respect to payouts, withdrawals other distributions. - When plan earnings are calculated by reference to actual earnings of mutual funds other securities, such as company stock, it is sufficient to identify the reference security quantify its return. This disclosure may be aggregated to the extent the same measure applies to me than one NEO. Adopting Release at text following note 311. Payout of Deferred Option Exercises Stock Vested (g) - If compensation is deferred in the fm of repted in the year earned as Stock Awards Option Awards, then amount realized on vesting exercise is to be included in this SCT Non- Equity Incentive Plan (c)(2)(vii) - If compensation is deferred in the fm of repted in the year earned in Grants of Plan-Based Awards as non-equity incentive plan compensation, then the payout of compensation is to be repted in this. - Distributions of nonqualified deferred compensation are not rep in the All Other of the SCT. Adopting Release at text following note 225. Nonqualified Deferred (i) - The aggregate dollar amount of all withdrawals by distributions to the executive during the registrant s last fiscal year under nonqualified deferred comp ensation plans must be repted in this DALLAS v W. Alan Kailer September 2006
17 Earnings on Deferred (Including earnings under Defined Contribution Plans) SCT Pension Value Nonqualified Deferred Earnings (c)(2)(viii)(b) - Above-market preferential earnings on compensation that is deferred on a basis that is not tax-qualified, including such earnings on nonqualified defined contribution plans, must be included in this of the SCT - Interest is above-market only if the rate of interest exceeds 120% of the most analogous applicable federal long-term rate, with compounding. F a discretionary reset of the interest rate, the requisite calculation must be made on the basis of the interest rate at the time of the reset. (c)(2)(viii), Instruction 2. - If the interest rates vary depending upon conditions such as a minimum period of continued service, the repted amount should be calculated assuming satisfaction of all conditions to receiving interest at the highest rate. (c)(2)(viii), Instruction 2. - Dividends on deferred compensation denominated in the registrant s stock are preferential only if earned at a rate higher than dividends on the registrant s common stock. (c)(2)(viii), Instruction 2. - Footnote narrative disclosure may be provided explaining the registrant s criteria f determining any ption considered to be above-market. (c)(2)(viii), Instruction 2. - The registrant must identify quantify by footnote the separate amounts attribu to change in pension benefit present value deferred compensation earnings included in this. - There is no specific requirement to disclose earnings under qualified defined contribution plans, such as 401(k) plans - Deferred compensation plan earnings are rep even if the deferred compensation plan is unfunded thus subject to risk of loss of principal. Tel. Interp. Man. Supp. 2S. Nonqualified Deferred (i) - All earnings, not merely above-market ption, on nonqualified deferred compensation during the last year must be repted in this. See Adopting Release at text accompanying note Footnote to must quantify the extent to which amounts repted in this are were repted as compensation in the SCT, (i)(2), Instruction. - There is no specific requirement to disclose earnings under qualified defined contribution plans, such as 401(k) plans DALLAS v W. Alan Kailer September 2006
18 Narrative (e) (i)(3) - Narrative must describe any material facts necessary to an understing of each plan covered in this, which may include the types of compensation that may be deferred, the measures f calculating earnings on the deferred compensation material terms of payouts, withdrawals distributions - The narrative description of the measures used to calculate interest other plan earnings may include whether those measures are selected by the NEO the company the frequency manner in which such selections may be changed, a quantification of interest rates other earnings measures applicable during the company s last fiscal year. See Adopting Release at text accompanying note When plan earnings are calculated by reference to actual earnings of mutual funds other securities, such as company stock, it is sufficient to identify the reference security quantify its return. This disclosure may be aggregated to the extent the same measure applies to me than one NEO. Adopting Release at text following note 311. Employee Contributions to Defined Contribution Deferred Plans SCT (c) - Included in Salary Bonus amounts because deferred at election of executive. See Deferred. Nonqualified Deferred (i) - F any nonqualified plan under which an NEO may defer compensation, NEO contributions must be disclosed in this - Footnote to must quantify the extent to which amounts repted in this are were repted as compensation in the SCT, (i)(2), Instruction. - This disclosure is not required f qualified plans. Adopting Release at note 143. Employer Contributions Allocations under Defined Contribution Plans Deferred Plans SCT All Other (c)(2)(ix)(e) - See Deferred. - Includes qualified as well as nonqualified defined contribution plans - Includes allocations as well as contributions - Must be repted whether amounts are vested unvested - Amount f the latest year must be identified quantified in a footnote if it exceeds $10,000 Nonqualified Deferred (i) - F any nonqualified plan under which an NEO may defer compensation, registrant contributions must be disclosed in this - Footnote to must quantify the extent to which amounts repted in this are were repted as compensation in the SCT. (i)(2), Instruction. DALLAS v W. Alan Kailer September 2006
19 Distributions from Defined Contribution Plans Nonqualified Deferred (i) - The aggregate dollar amount of all withdrawals by distributions to an NEO during the registrant s last fiscal year under nonqualified deferred compensation plans must be repted in this. Not repted - The rules do not require disclosure of distributions from qualified defined contribution plans Life, Health, Hospitalization, Medical Reimbursement Plans Not Repted (a)(6)(ii) - Registrants may omit infmation about these plans if the plans do not discriminate in scope, terms operation, in fav of executive officers directs are generally available to all salaried employees; if plans discriminate in fav of executives directs, then rept as perquisites life insurance under All Other ; See Perquisites Other Personal Benefits Life Insurance F NEO s Direct s Benefit. - Narrative disclosure may also be required in connection with descriptions of employment, consulting severance agreements. See Severance Change in Control Agreements Provisions, Employment agreements arrangements with NEOs Direct Fees Other Direct. Relocation Plans Assistance SCT All Other (c)(2)(ix)(a) - Relocation payments are rep as a Perquisite under the All Other even if the plans are nondiscriminaty available to all employees. See Adopting Release at text following note 210 text accompanying notes All Other SCT All Other (c)(2)(ix) - All compensation not properly rep in any other of the SCT generally must be repted in this. See Adopting Release at note 198 f specific exceptions. - Each item other than perquisites must be identified quantified in a footnote if the amount of the item f the latest year exceeds $10,000. (c)(2)(ix), Instruction 3. - If the total value of all perquisites f the latest year is $10,000 me f any NEO, then each perquisite, regardless of its amount, must be identified by type. If perquisites personal benefits f the latest year are required to be repted f an NEO, then each perquisite personal benefit that exceeds the greater of $25,000 10% of the total amount of perquisites personal benefits f that NEO must be quantified disclosed in a footnote. (c)(2)(ix), Instruction 4. - Consider presenting items included in this in a supplemental. See Adopting Release at text following note 542. DALLAS v W. Alan Kailer September 2006
20 Perquisites Other Personal Benefits, SCT All Other (c)(2)(ix)(a) - The aggregate value of all perquisites received in any year must be disclosed unless that amount is less than $10,000 f that year - If the total value of all perquisites f the latest year is $10,000 me f any NEO, then each perquisite, regardless of its amount, must be identified by type. (c)(2)(ix), Instruction 4. - If perquisites personal benefits f the latest year are required to be repted f an NEO, then each perquisite personal benefit that exceeds the greater of $25,000 10% of the total amount of perquisites personal benefits f that NEO must be quantified disclosed in a footnote. (c)(2)(ix), Instruction 4. - Description of perquisites must identify the particular nature of the benefit received, rather than a generic description. See Adopting Release at text following note Perquisites must be valued on the basis of the aggregate incremental cost to the registrant, f each perquisite f which footnote quantification is required, the registrant must explain in a footnote its methodology f computing the aggregate incremental cost. (c)(2)(ix), Instruction 4. - Gross-ups on perquisites must be separately included in the All Other separately identified quantified as tax reimbursements even if the associated perquisites are not required to be separately quantified not required to be included because the total of all perquisites is less than $10,000. (c)(2)(ix), Instruction 4 - Personal use of a company plane is considered a perquisite must be disclosed even if the Board determines that it is desirable f the executive to use the company plane f security reasons. Adopting Release at text following note 209; 2003 JCEB, Q.19(b). - To the extent the Stard Industry Fare Level (SIFL) rate prescribed by federal income tax rules is different than the actual incremental cost of the use it is not permissible to use SIFL rather than the incremental cost. Adopting Release at note 213; See 2003 JCEB, Q.19(a). - Staff has commented that cash paid in lieu of accrued vacation is to be repted in the Salary, Weig at J-22 Tax Reimbursement Payments Gross-ups SCT All Other (c)(2)(ix)(b) - Gross-ups on perquisites must be included in this separately identified quantified as tax reimbursements even if the associated perquisites are not required to be separately quantified not required to be included because the total of all perquisites is less than $10,000. (c)(2)(ix), Instruction 4. - The same rule applies to gross-ups that relate to other types of compensation. Adopting Release at text following note 204. DALLAS v W. Alan Kailer September 2006
21 Severance Change in Control Agreements Provisions Narrative (j) - All such provisions in any employment, option, severance other agreement plan must be described, with no threshold, except that post-termination perquisites are subject to same thresholds that apply to perquisite disclosure in SCT, as described under Perquisites Other Personal Benefits. (j), Instruction 2. - This requirement applies to any benefits triggered by a change in responsibilities, not only those triggered by a change of control. Adopting Release at note Narrative must describe the specific circumstances under severance change-in-control provisions that trigger benefits, including perquisites health benefits, describe quantify estimated annual benefits that would be provided in each circumstance, describe how the benefit levels under the various triggering circumstances are determined, describe any material conditions to receipt of benefits describe any other material aspects of the agreements, such as gross-up payments - If benefits are subject to conditions, describe conditions in sufficient detail to underst extent, f example, duration of noncompetition provisions provisions regarding waiver of conditions - Registrants must provide quantitative disclosure under this requirement applying the assumptions that the triggering event took place on the last business day of the registrant s last completed fiscal year, the price per share of the registrant s securities is the closing market price as of that date. (j), Instruction 1. - If uncertainties exist as to the provision of payments benefits the amounts involved, the registrant must make a reasonable estimate of the payment benefit material assumptions. (j), Instruction 1. - F purposes of quantifying health care benefits, the registrant must use the assumptions used f financial repting purposes. (j), Instruction 2. - If the fm amount of any payment benefit that would be provided is fully disclosed in the Pension Benefits the Deferred, reference may be made to that disclosure. However, if the fm amount of any such payment benefit would be enhanced accelerated in connection with any triggering event, that enhancement acceleration must be disclosed pursuant to this requirement. (j), Instruction 3 - When a triggering event has actually occurred f an NEO that individual was not serving as an officer of the registrant at the end of the last completed fiscal year, only the benefits payable on that triggering event are required to be disclosed. (j), Instruction 4. - It is not necessary to provide infmation with respect to contracts, agreements, plans arrangements that do not discriminate in scope, terms operation, in fav of executive officers of the registrant that are available generally to all salaried employees. (j), Instruction 5. - In addition to this disclosure, to the extent that payment of post-termination compensation is repted in the SCT, those payments must be addressed in the narrative required under (e) that accompanies the SCT. Adopting Release at text accompanying note Registrants are encouraged to provide this disclosure in a supplemental. See Adopting Release at text following note 543. DALLAS v W. Alan Kailer September 2006
22 Severance Change in Control Payments SCT All Other (c)(2)(ix)(d) - Any amount paid accrued to an NEO in connection with any termination, retirement, resignation, severance constructive termination, a change in control must be repted in this - paid as a result of a business combination, other than in connection with termination of employment change-in-control, such as a retention bonus, acceleration of option stock vesting periods, perfmance-based compensation intended to serve as an incentive to enter into transaction is to be disclosed in the appropriate SCT in the other appropriate s narrative applicable to the type of compensation. Adopting Release at note Must be identified quantified in a footnote if the amount f the latest year exceeds $10,000. (c)(2)(ix), Instruction 3. - Any tax reimbursement, gross-up, payment associated with the severance payment must be included in the total f this, but separately identified quantified as such in the footnotes. (c)(2)(ix)(b). - If payments are to be made over a period of several years, the total amount payable over the period must be shown, 2001 JCEB, Q.14 Narrative (e)(1)(i) - To the extent that payment of post-termination compensation is repted in the SCT, those payments must be addressed in the narrative required under (e) that accompanies the SCT. Adopting Release at text accompanying note 255. Pension Defined Benefit Plan Benefits (including supplemental plans) SCT Change in Pension Value Nonqualified Deferred Earnings (c)(2)(viii) - Aggregate change in the actuarial present value of the accumulated benefit under all defined benefit actuarial pension plans (including cash balance supplemental plans, but excluding defined contribution plans) from the pri year to the covered fiscal year must be included in this - In calculating the amounts f this, the registrant is to use the amounts repted that would have been repted f the NEO in the Pension Benefits f the applicable years. (c)(2)(viii), Instruction 1. - The registrant must identify quantify by footnote the separate amounts attribu to pension accruals deferred compensation earnings included in this. Where change in the pension benefit present value is negative, it is to be disclosed by footnote but not be reflected in the sum repted in this. (c)(2)(viii), Instruction 3. - Pension Benefits paid during a year are not rep in the SCT, unless accelerated pursuant to a change of control. (c)(2)(ix), Instruction 2. DALLAS v W. Alan Kailer September 2006
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